Investment Tenets

1.  Think long-term

Long-term means long-term.  Long-term is measured over five to ten years or more.  In the short run, a coin flipper has a 50 / 50 chance of rightly calling heads or tails.  A lot of investment professionals employ this coin flipping approach and pass it off as skill or insight.  Wisdom is borne out over time, not this quarter or next.  Slow and steady wins the race.

"In the short run, the market is a voting machine, but in the long run it is a weighing machine."

-- Warren Buffett / Benjamin Graham

2.  Buy businesses not stocks

Own a fractional interest in a business, not a little piece of paper that wiggles around every day.  Investment performance is underpinned by the performance of the underlying business over time.  Let the operating results of the business inform, not the stock price.  Not right because the stock market  immediately agrees, nor wrong because the stock market immediately disagrees.  Positive investment results are due to a reasonable, rational and long-term assessment of the business.  Long-term market price and underlying business value are highly correlated and should converge over time.

“Over the long-term, it’s hard for a stock to earn a much better return than the business which underlies it.  If the business earns 6% on capital over 40 years and you hold it for 40 years, you’re not going to make much different than a 6% return - even if you originally buy it at a huge discount.  Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.”

-- Charlie Munger

3.  Have the patience to benefit from the long-term power of compounding

Compounding takes time.  A penny ($0.01) that doubles every day for thirty days becomes over $10.7 million, but it takes twenty-seven days for that penny to grow  into $1 million (exponential returns coming in the last three days).  Investing is a long-term endeavor and requires patience.  A lot of times investors are impatient and do not give businesses time to compound.  The business does the work and a stock cannot earn a higher return than the underlying business over an extended period.  High quality businesses that compound capital at high rates of return are hard to come by and, when owned, can be the gift that keeps on giving.

“Compound interest is the eighth wonder of the world.  He who understands it, earns it … he who doesn’t … pays it.”

-- Albert Einstein

“Time is your friend, impulse is your enemy. Take advantage of compound interest and don’t be captivated by the siren song of the market.”

-- Warren Buffett